I could write a very short blog post here and say: Just don’t do it if you can’t live your small dwelling dream without a mortgage.
I know now one of the cornerstones of the Small House Movement is to simplify life, which includes ridding ourselves of unnecessary debt. If I had learned of Kent’s Tiny House blog and read his advice about getting out of debt sooner, I may not be writing this now.
We didn’t build a lavish small house with all of the bells and whistles. We built our Little House based on what we could afford, which really meant, based on the payments we could afford. Like many people, that’s how we previously defined “affordable.”
When we signed the papers the first time, we thought we couldn’t get a good mortgage – and by good, I mean a fixed rate for a certain amount of time at the end of which you hold a great big mortgage burning party – because we didn’t live here full time.
Although our land was paid for and we had the highest credit rating possible, our city bank wouldn’t loan money for property out of state, and all of the banks in this town, save for one, refused us a mortgage.
That bank would only do a 5 year ARM (adjustable rate) with a balloon.
When we moved, we thought things would be different, but we were wrong. This time, the bank refused us a “good” mortgage because of the lack of comps, those irritating “comparables” that have become the backbone of defining what your home is worth.
We live in an area where people were buying and selling behemoth McMansions on the lake, there were no “comps” within 50 miles for acreage on the lake that housed a 480-square foot Little House.
The secondary market refused us because we weren’t asking for enough money.
It was a real kick in the pants to learn we had worked all of our lives to build our credit to an exceptional level, and even the land to support the risk, lenders thought we just didn’t have enough house.
Rather than working toward an end, we now feel we’re stuck in a never-ending cycle of 5 year ARMS that have to be renewed (possibly at much higher rates).
Had we known this seven years ago when we started building, our definition of “building what we can afford” might have been a lot different.
I’m glad we went for our dream and we are here, arriving here the only way we knew we could, but those hoping to move to a small house should be aware of the difficulties if you planned on financing all or part of your dream.
If you must use financing, I would advise seeking out a locally owned bank if you can, where they are much more inclined to work with you based on who you are as a customer, rather than placing so much emphasis on comps and minimum loan amounts.
by Kerri Fivecoat-Campbell for the (Tiny House Blog)
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If you had to finance, & do it all over again, would a 2nd mortgage (with the larger home) been an option, to pay for the smaller house.
My thought is, first don’t over do things with loans, but If the primary home & a second mortgage could be paid back with the sale of the primary home (in the future), that might be ideal, let the big house buy the small house. When you retire, etc… sell the big house, move to the lake, your home free. 🙂
Just some thoughts,
Switcher,
Those are good suggestions and might work for some, it wasn’t so in our case. While our “big” house in the city, was bigger, it really wasn’t a monster at 1,100 sq. ft. It was a “starter home.” It did increase in value during the time we owned it, but the profits were in the tens of thousands, not hundreds. We needed a well here and since my husband is a mechanic, he needed a shop and I needed an office out of our 10 x 10 bedroom. cha-ching!
I used to work in the “financial” sector.
Banks are in business to MAKE a profit, NOT customer service. It does not matter who you are or what your credit score is…is the deal profitable for the bank?
When they are loaning at 9-1 ratios, they HAVE to protect themselves otherwise they go belly up, just as we have been seeing lately, OVER 100 Banks/Lenders in the US just this year!
Exactly, Matt. Lessons we’ve learned the hard way.
Remarkably, one of the FHA underwriting guidelines that has been dropped since the mortgage crisis is the minimum home size requirement. It used to be 900, but that has gone away. Finding the comps for tiny, tiny houses (transportables) may be almost impossible, but finding comps for 500 sf+ houses in many markets isn’t that difficult.
Picking up on Matt’s excellent point – a consideration for tiny/small home builders is the resale value of their home. The further “off the reservation” the design, the material spec and the lifestyle convenience choices (composting toilets, off grid, no garage, not building to code… etc) the more limited the potential buyer pool is, thus the more risky it is for lenders.
In more than two decades in the building trades I’ve witnessed many starry eyed owner/builders create their dream home with every intention of living their forever, I’m guilty of it myself. In more cases than not real life happens, someone loses a job or gets a better one somewhere else, the have more kids, they divorce, the area around them develops and the quality of life declines… and that usually necessitates and/or motivates a move. Building with the perspective that one day you may need to sell will help guide specification choices. While looking for our property we looked at a lot of properties with alternative buildings (Yurts, various “green” buildings)and found them to have exaggerated comparative values and/or were poorly executed. We chose to get raw land and do it ourselves.
With the interest rates so artificially low, NOW is the time to act if you can. Look at your venture as an investment (not romantic I know) and not as rent.
Excellent points, thank you for chiming in.
Bank?! Bank?! Why are people even using the word bank anymore???!!! I have two words for you. Credit Union. Non-profit, by it’s members and for it’s members. Learn about it!
I agree wholeheartedly! I have accounts with 2 local credit unions and love them both! I only have one minimal account in a bank and it is only so I can have a safe deposit box there.
As I learn more and more about what the costs are of building a tiny home I find myself more confused by the concept that these houses offer financial freedom.
You do save a bundle on utility costs, there is no question about that.
But unless you want to spend several months trying to build it yourself (which, from what I understand, is no easy task even if you are a builder or carpenter) then the cost of materials, the cost of a contractor, the cost of moving the house, the cost of land to put it on and the cost of insulating the house, the cost of setting up your heating, cooling, water and electricity supply (however you choose to do it) as well as the cost of setting up a decent composting toilet really begins to add up (Tumbleweed wants you to pay anywhere from $600 to $1,000 just buy their plans!).
True $50 to $65,000.00 is not, by any stretch, considered a lot of money to pay for a house. But in the case of tiny homes you are left with a debt and monthly payment and the need to make some serious lifestyle adjustments.
Sadly I have come to the conclusion that tiny houses may only be “affordable” to those who already have a large chunk of money in the bank, that they would be a nice, cheaper option for people who are upper middle class or wealthy and who have a conscience about the environment and that they really don’t offer a solution to those who truly need a break on housing costs (and who would like to greatly reduce their carbon footprint).
It’s as if, especially in the case of Tumbleweed Tiny House Company – as much I admire the idea and the beauty and efficiency of Jay Schafer’s house designs, that what I would really be paying for is an idea, a name and idea and not really gaining the “freedom” people keep talking about.
If I’m wrong on this please feel free to let me know, but this is how the tiny house picture is looking to me right now.
For eveyone else who is pursuing this dream I truly do hope it works out for you.
Kathleen
Kathleen, I agree. Jay’s houses are “neat”, but there is no way I would ever pay $40,000 for a trailer.
This website that Kent has put together is AWESOME in the fact that it incorporates TONS of things, ideas and of course homes. We are left to decide what is right for each of us.
You WILL know what to do and when to do it. Most of us want so much to get out of the rat race and go somewhere and build…yet reality sets in and provides some much needed perspective.
I DON’T have a tiny house YET. I DO own land, which took me two years to save for. Just take things as they come and give yourself the benefit of the doubt.
If you WANT it, you will ACHIEVE it !!!
I agree, this blog is incredibly valuable and Kent is so great about providing much needed and helpful information. I check Tiny House Blog everyday (I guess I’m still holding on to the dream on some level 🙂 ).
Kathleen,
There’s many reasons people have tiny homes. For us, it was more about living on the land here, on a lake, than it was about the house. When we got here full time, it did offer us a smaller payment than building a larger home (and I’m very glad we don’t have a larger payment now). We never entered into it with the idea of being independent of a payment, just having a lower one.
The smaller house does offer many more benefits – less to heat and cool, more time to ourselves free of maintenance of cleaning, and the biggest benefit is it has drawn my husband and I closer.
I think you have some valid points, Kathleen. The build-your-own-tiny-house concept is very charming, but with mortgage problems like Keri describes, the cost of building on raw land (needing wells, utilities, driveways, etc etc) OR the problem of finding a “parking spot” for a portable house, and the reality that most people are living in families larger than 1 or 2 people, most of us aren’t really in the running for the wee trendy Tumbleweed-style houses. As much as I love to follow the movement, I know this is not where my life is headed anytime soon, and I don’t think most people have the resources at hand to realistically pursue it.
I am always wondering why I don’t see more within the “Tiny House Movement” about people buying older homes in established neighborhoods– 2br/1ba cottages from the first half of the 20th century can be quite compact and livable, and in my area, had for a fraction of the cost of building your own tiny house. They’re often built for simple living, with smaller closets, smaller kitchens, larger yards w/ garden spaces, and a lack of extraneous square footage. Our 1916 home has simple plumbing and wiring that’s easy to understand and access, wood windows that can be repaired indefinitely rather than being replaced, and a floor plan that uses every square inch.
I suspect it’s just not quite as snazzy a tale as the build-your-own stories. I’ll keep reading here (and at Kerri’s blog!), but I think the movement could be much larger than it’s currently considered to be if it often focused on existing older small homes as well.
Kim
(living in about 1500sqft with 2 kids, a husband, a dog, and an insurance company)
Hi Kim,
Kent the publisher of the Tiny House Blog. I would really like to cover more of the 2br/1ba cottages from the first half of the 20th century but unfortunately I have not heard from those who live in that type of home. I would very much like to include that group in the tiny house movement as I am sure there are many out there living that life style.
I tend to cover new homes and ideas and builds because that is what is shared with me. I agree also that to most this is a dream and not a reality. I myself fit in that group, currently we live in a 1200 sq ft home with two children, and they are off at college now so part of the house is empty most of the time.
Thanks for your input and for telling it like it is…Kent
Hi Kim,
There are probably some environmentalists who would disagree but I don’t see how it would not be possible to “green-ify” existing homes. Julia Louis Dreyfus from Seinfeld and Ed Begley, Jr. are probably 2 good examples of people who sure don’t live tiny but who are basically off-grid.
Kathleen
I’ve wondered the same thing, Kim. Older homes can be made more green. If I were going to move back to the city, this is definitely something we would do. I love an older house, just don’t want the great big Victorian anymore!
I agree. Look at the thousands of homes that were built right after WW2 for the returning GI’s. Small, with just the right amount of square footage for a small family. Or how about the 235 homes? I lived in one in the 70’s and it was perfect for myself, husband and two children. Nice sized fenced in yard for my children to play and for me to garden. When did the monster homes become the norm? I can’t seem to put a finger on it.
What is a “235” house?
Here, Todd. I had to google it, I didn’t know either:
http://ecoabsence.blogspot.com/2008/10/lemonade-remade-section-235-house.html
Kathleen…I totally agree with you! When I see how much these people living in the tiny houses have paid for them I am astounded. It has not been a boon for those who actually need inexpensive housing, it seems more like a “play house” for the rich and I imagine many will soon tire of this game of being “Green” and cramped. I love the little house idea, but not at this cost. (me, I live in a little house…it’s called a “mobile home”. 🙂
If the deal on tiny houses was that after spending, let’s say, $15,000.00 you had yourself a nice small home that you call your own and that you had the option of moving if you needed to I would probably go for it. I stll haven’t completely given up on the idea yet, I’m going to look into the possibily refurbishing a used single-wide, I don’t think it would be hard to “green” one of those. I guess there’s just no simple, easy way around finding an affordable home, it’s tricky.
Thanks, you got me to thinking….
Hope I didn’t rain all over your parade – lol! Maybe there is a efficient, affordable way to do this I just haven’t heard of any at this point. Check out SingRV, some of their homes go for less than $10,000.00. Can’t get an answer as far as what kind of weather conditions they can handle though.
I think most people living the small house dream build their houses themselves. While intimidating at first once you dig in and start learning, it’s not really that complicated. It won’t come easy though as it’s taken me about 2 years of on/off research to feel confident. But heck it takes 2 years or more to save up for land so why not use that time wisely. You can follow the stories of people who build themselves at the countryplans.com owner builder forum. That is where I have learned most of what I know.
Yeah, maybe I’m just letting the idea of it overwhelm me, but I am definitely proceeding slowly and with caution before I make any definite plans.
The costs of these tiny houses are way out of line. We built a small house, 650 square foot, with a full kitchen & bath 17′ vaulted roof line. Land 4 acres, septic, drilled well, undergroud electric, concrete slab, hardwood floors and much more for under $60,000. Approx. 90% our own labor. We used our own cash, took 2 years to complete. Anything I can do to help contact Bob RX2Ride@epix.net
Everyone I showed the Tumbleweed Tiny House brochure to agreed that it was great idea (people are fascinated, as am I, by the thought of having everything they need in a compact space)and that the houses were beautiful but all of them did exclaim at one point, “Wow! These things aren’t cheap!”
Thanks for sharing your e-mail address and your building knowledge.
Kathleen
Kathleen
Just to make sure I’m not leaving the impression that we have a huge mortgage, we built our little house, with the cost of the well, for $68,000, and we didn’t do any of the major work ourselves.
I also want to add that my aunt, who is not an architect, but has basic construction skills, designed our house using a program on a computer. That was so easy to do, I think I could even do it and I don’t have very much construction knowledge.
you would be better off to get a used camping trailer. set it on blocks or poles as a temporary shelter while saving money for a decent cabin and using your own labor to dig a well/septic and landscape.your site as shown is perfect for a gravel driveway and dont forget a shed to store stuff.
How can you get a building permit without financing? I’m looking into shipping containers and wondering if any American community actually would permit these as single family dwellings.
They are using shipping containers in Seattle to build apartment complexes and single family dwellings.